On November 16, 2017, a divided FCC voted 3-2 in favor of eliminating several long-standing media ownership rules. The move by the FCC represents a major change in policy, and another step in the FCC’s ongoing media modernization initiative. According to the FCC, the decision, “acknowledges the dynamic nature of the media marketplace, but takes concrete steps to update its broadcast ownership rules to reflect reality.” The decision was divided along party lines, with Republicans voting in favor of eliminating many of the rules that were just adopted last year in the FCC’s Second Report and Order under the then-Democratic controlled Commission. In the Order on Reconsideration the FCC eliminates the Newspaper/Broadcast Cross-Ownership Rule (“NBCO”); eliminates the Radio/Television Cross-Ownership Rule; revises the Local Television Ownership Rule to eliminate the “Eight-Voices Test”; eliminates the attribution rule for television joint sales agreements (“JSAs”); retains the Local Radio Ownership Rule; retains the disclosure requirement for shared services agreements (“SSA”) involving commercial television stations; and adopts an incubator program to increase entry and diversity into the broadcasting space. The FCC also seeks comment on how to best implement the broadcast incubator program. The following is an overview of the FCC’s action.
Newspaper/Broadcast Cross-Ownership Rule
The FCC repeals the NBCO rule in its entirety. When the NBCO rule was established more than forty years ago, it prohibited common ownership of a daily print newspaper and a full-power broadcast station if the station’s service contour encompassed the newspaper’s community of publication. Upon review of the NBCO rule, the FCC determined that the initial reason for establishing the rule—to provide a diversity of viewpoints when there were very few sources of news and information available in the local market—is no longer relevant. The FCC found that in today’s media marketplace there is a multiplicity of sources for news and information, mostly fueled by the internet and social media, which can provide a hyperlocal focus, while the impact of daily print newspapers has diminished. Therefore, according to the FCC, the NBCO rule is no longer necessary to promote viewpoint diversity.
In repealing the NBCO rule, the FCC noted that bipartisan legislation had been introduced in Congress to eliminate the NBCO rule with Rep. Walden stating that elimination of the rule would “provide much needed flexibility to the many newspapers and broadcasters throughout the country that provide important local news coverage and encourage greater investment in original journalism.” The FCC also pointed to the fact that several organizations representing minority-owned media outlets asserted that the NBCO rule has constrained the ability of those media outlets to serve their local communities and that the rule has outlived its usefulness.Radio/Television Cross-Ownership Rule
Last August under Democratic FCC Chairman Wheeler, the FCC issued its Second Report and Order, which retained the Radio/Television Cross-Ownership Rule with only minor modifications. That rule places restrictions on cross-ownership of radio and television stations in the same market with “the principal purpose” of promoting viewpoint diversity in local markets. Following issuance of the Second Report and Order, the National Association for Broadcasters (“NAB”) filed a petition for reconsideration of that decision. In this order, the FCC grants NAB’s request, and eliminates the Radio/Television Cross-Ownership Rule. On reconsideration, the FCC concludes that the previous Commission erred in finding that the rule was necessary to promote viewpoint diversity in local markets.
The FCC concludes that the local media marketplace today is far more vibrant than when the rule was enacted. The FCC notes that broadcast, television, cable, print, and a multitude of online sources all contribute to viewpoint diversity. Coupled with the fact that the rule already permits a significant degree of common ownership, the FCC concludes that elimination of the rule will have a negligible effect on the current state of the media marketplace.
Local Television Ownership Rule
Under the Local Television Ownership rule, an entity can own up to two television stations in the same DMA if: (1) the service contours of the stations do not overlap; or (2) at least one of the stations is not ranked among the top-four stations in the market (“top-four prohibition”), and at least eight independently owned television stations remain in the DMA (“eight-voices test”) following the combination.
On reconsideration, the FCC eliminates the requirement that at least eight independently owned television stations must remain in the market in order for one party to own two TV stations in a market. The FCC also adopts a hybrid approach to the restriction on ownership of two top-four ranked stations in the same market. In last year’s Second Report and Order, the FCC found that the Local Television Ownership Rule was necessary to promote competition and viewpoint diversity by helping to ensure the presence of independently owned broadcast television stations in local markets.
In modifying the Local Television Ownership Rule, the FCC considers the fact that consumers are increasingly accessing video programming delivered by cable TV and satellite, the internet, and via online video distributors. Consequently, the FCC finds that there is no evidence to support retaining the Eight-Voices Test to promote viewpoint diversity. However, the FCC did find continuing support to treat combinations of two top-four stations differently from other combinations. Accordingly, the FCC modifies the Top-Four Prohibition to include a case-by-case analysis. This will allow the Commission to address instances in which application of the Top-Four Prohibition may not be warranted based on the circumstances in a particular market or with respect to a particular transaction. The FCC reasons that this approach will allow for a more refined application of the Local Television Ownership Rule that will help facilitate the public interest benefits associated with common ownership of TV stations in local markets.
Local Radio Ownership Rule
On reconsideration, the FCC reaffirms its decision to retain the Local Radio Ownership rule in the Second Report and Order. The FCC finds that the rule remains necessary to promote competition and that the radio ownership limits promote viewpoint diversity by ensuring a sufficient number of independent radio voices and by preserving a market structure that facilitates and encourages new entry into the local media market. Accordingly, the Local Radio Ownership Rule will continue to allow a sliding number of stations to be owned in a single market based on the total number of radio stations in the market. However, the FCC adopts a narrow presumption in favor of waiving the rule in circumstances involving the New York City and Washington, DC markets.
Joint Sales Agreements
The FCC eliminates the Television JSA Attribution Rule. Under a JSA agreement, one station (the broker or the brokering station) is authorized to sell some or all of the advertising time on another station (the brokered station). Under the JSA Attribution Rule, if a TV station enters into a JSA with another TV station in the same market for more than 15 percent of that station’s advertising time, the second station is “attributed” to the first station for purposes of the FCC’s Local Television Ownership Rule. Thus, if the first station could not own the second station under FCC rules, it would also be prohibited from selling more than 15 percent of that station’s advertising time.
In last year’s Second Report and Order, the FCC chose to reinstate the Television JSA Attribution Rule first adopted in the 2014 Report and Order. This decision came after the Third Circuit had vacated the JSA Attribution Rule in Prometheus III, finding that adoption of the rule was procedurally invalid as a result of the FCC’s failure to also determine that the Local Television Ownership Rule served the public interest. In eliminating the JSA Attribution Rule, the FCC notes the lack of evidence supporting the Commission’s prior determination that television JSAs confer a significant degree of influence or control over the core operating functions of the brokered station. On reconsideration, the FCC concludes that the record overwhelmingly demonstrates that television JSAs promote the public interest. In particular, the FCC notes that television JSAs create efficiencies that benefit local broadcasters—particularly in small-and medium-sized markets—and enable these stations to better serve their communities as the video marketplace is rapidly changing.
Shared Service Agreements
An SSA is defined as an agreement in which a station provides “any station-related services, including, but not limited to, administrative, technical, sales, and/or programming support” to a station that is not under common control permitted under the FCC’s rules. In what seems like the only aspect of last year’s Second Report and Order that the FCC is maintaining, the FCC chooses to uphold the requirement that commercial television stations disclose SSAs by placing them in their online public inspection files. The FCC finds that the SSA disclosure requirement does not unduly burden commercial television broadcasters, but retains the authority to revisit the disclosure requirement should circumstances warrant.
In the Report and Order, the FCC adopts an incubator program to help promote new entry and ownership diversity in the broadcast industry. The program is designed to address barriers to station ownership, such as lack of access to capital and the need for technical/operational experience. However, the FCC also issues a Notice of Proposed Rulemaking (“NPRM”) to seek comment on how to best design and implement the incubator program to encourage the entry of new and diverse voices in the broadcast industry. Specifically, the FCC asks for comments on how to determine what entities are eligible for participation in the incubator program; how to determine qualifying incubation activities; and how to ensure the incubating broadcast station obtains a meaningful benefit. The FCC also seeks comment on more procedural matters such as how to best review incubation proposals; how to ensure compliance with the rules of the incubator program; and generally on the costs and benefits of implementing an incubator program. Parties interested in providing comments on these questions should contact DWT for assistance.
Media Ownership Rules Going Forward
This Report and Order responds to the broadcast industry’s call to loosen media ownership restrictions in a media market increasingly dominated by online digital content. However, the Commission’s elimination of many of the rules that were adopted little more than a year ago in the Second Report and Order will likely result in challenges to the Order, both on reconsideration and in the courts. Dissents from Democratic Commissioners Clyburn and Rosenworcel will surely add fuel to the arguments from public interest groups that the FCC has gutted important media ownership rules that have stood the test of time and served the public interest until now.